Businesses Cite Government as the Problem

February 24, 2010

According to the latest Small Business Economic Trends survey conducted by the National Federation of Independent Businesses, 31 percent of respondents said the single most important problem facing small businesses is “poor sales.” “Taxes” and “Government Regulations and Red Tape” came in second and third place at 22 percent and 13 percent respectively. Combining the two, the biggest problem facing small businesses according to respondents is government

Unfortunately, when the media discusses the NFIB survey, it conveniently ignores this fact. Take for example this February 11thpost from The Economist’s Free Exchange blog: 

What’s the biggest problem? 
‘Small business owners entered 2010 the same way they left 2009, depressed,’ said William Dunkelberg, NFIB chief economist. ‘The biggest problem continues to be a shortage of customers.’ 
That will tend to make life hard on a businessman. Of course, that biggest of problems won’t be going away until the economy begins adding more jobs than it’s destroying, and obviously small businesses aren’t there yet. The Obama administration is betting that by creating an incentive to hire, it will change the math—firms will move from cutting jobs on net to adding jobs on net, which will increase the number of customers out there, which will, in turn, feed more hiring. Hopefully, that will be enough, but the proposed $33 billion looks awfully small given the 15 million unemployed.          
Free Exchange, which cheerleads almost daily for more government spending, somehow sees in the NFIB survey a need for more government. But in the survey’s write-up, the NFIB makes it perfectly clear that its membership doesn’t view more government spending as part of the solution: 
Instead, Congress is focusing on a health care bill that features crippling taxes and mandates for small firms, fully expecting to have it in place and implemented (10 years of taxes, seven years of “reform”) this year with unemployment at 10 percent and expected by many to rise. Lawmakers also allowed the minimum wage to rise by nearly 11 percent in July 2009, catapulting teen job loss to over 500,000 and an unemployment rate of 27 percent in the second half even though the economy started growing. This was double the loss in the first half when GDP growth was plummeting. If the administration wants to count “jobs created and saved” it should also be accountable for “jobs destroyed or prevented. 
On top of all that bad news, small business owners fear Washington will then feel the need to “stimulate” us with even more spending and larger government (and taxes), the death knell for private sector vitality…The loss of a lock on 60 Senate votes for the Democrats may be encouraging to some owners, but the President and Congressional leaders still sound like they plan to press on with their agenda, not good news for small business owners. 
The NFIB released a new report yesterday that surveyed small businesses on their ability to obtain credit. 51 percent of respondents cited slow or declining sales as their principle problem. Only 8 percent cited access to credit. Although taxes and regulations weren’t choices, the second largest problem (21 percent) cited by respondents was “the unpredictability of business conditions.”
From the report: 
The second most cited immediate problem (21%) is the unpredictability of business conditions. Virtually the same level (23%) of concern with predictability was expressed one year ago. Data produced elsewhere suggest that the nature of unpredictability (certainty) may be shifting somewhat from economic to political concerns, such as new taxes. Regardless of its cause however, the risk to investment rises during periods of unpredictability, making investment less likely to occur at that time. Confidence matters. Small Business Economic Trends, for example, shows capital investment over the last several months bouncing around record low levels and staying there. 
Thus, we have more evidence that “regime uncertainty” is contributing to the economic downturn. But reading the Washington Post’s write-up on the NFIB report, one will find zero mention of the concern small businesses have with government fiscal policies. The Post article merely says this:
William J. Dennis Jr., the NFIB senior research fellow who headed the survey, said recent administration proposals, including $30 billion in new federal aid for community banks, were not likely to help. But he also said the NFIB was at a rare loss for ideas on what the government should do instead. ‘We’re really in a quandary right now,’ Dennis said.
Speaking of that $30 billion in federal TARP subsidies to community banks, the Washington Post also reports that Treasury officials are considering excluding the small business-lending initiative from oversight by Neil M. Barofsky, the special inspector general for the TARP bailout. Gee, might that have anything to do with the unflattering reports on TARP from Barofsky’s office?    
Alas, Washington doesn’t appear to be listening to what small businesses and the American people are saying they want: less taxes, spending, and regulations. Instead, in a vain effort to end a recession that government policies helped foster, policymakers continue to throw trillions of taxpayer dollars off the wall in the hopes that something sticks. 
Note: See Chris Edwards’ recent testimony before the Senate Finance Committee on taxes and small business job creation.



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